Danske Bank: Securitas – significant acquisition

Danske Bank har taget et kig på Securitas efter opkøb:

Securitas (MW) has made a transformative acquisition of the Electronic Security business from Stanley Black & Decker Inc for a purchase price of USD3.2bn on a debt and cash free basis – representing an EV/EBITDA multiple of around 13x. The acquired business is a provider of electronic security solutions with operations in 12 markets globally with annual sales of around USD1.7bn before synergies with an EBITDA margin close to 12% before synergies vs. Securitas current 7-8%. We see a good strategic fit and the acquisition is likely to strengthen the business risk profile of Securitas.

Securitas states that the deal will be financed through a combination of equity and debt (underwritten bridge facility) with an equity rights issue of USD915m intended to be launhed following completion of the deal which is expected in H1 2022. Securitas confirms it is committed to and expects to maintain its Investment Grade rating from S&P. However, the additional debt after the rigths issue of around USD2.3bn will increase the financial leverage of Securitas. Using the expected EV/EBITDA multiple of 13x based on Stanley Security’s estimated EBITDA for 2021 including cost synergies of USD50m and before sales synergies the additional EBITDA provided will be around USD250m. Pro-forma this will increase the leverage of Securitas to around 3.7-3.9x from the current 2.2x which is likely to lower the current BBB rating from S&P to BBB- in our view. We acknowledge the improvement in the business risk profile but the level of debt incurred and rise in leverae is significant. Overall we believe credit investors will see the deal as slightly negative despite the better longer term business risk profile and we expect outstanding bonds to widen some 10-15bp.

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